SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from __________ to __________
COMMISSION FILE NUMBER 0-1052
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Millipore Corporation
- ---------------------
(Exact name of registrant as specified in its charter)
Massachusetts
- -------------
(State or other jurisdiction of incorporation or organization)
04-2170233
- ----------
(I.R.S. Employer Identification No.)
80 Ashby Road
Bedford, Massachusetts 01730
- -----------------------------
(Address of principal executive offices)
Registrant's telephone number, include area code (781) 533-6000
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
The Company had 47,628,463 shares of common stock outstanding as of August 9,
2001.
MILLIPORE CORPORATION
INDEX TO FORM 10-Q
Page No.
--------
Part I. Financial Information
Item 1. Condensed Financial Statements
Consolidated Balance Sheets -
June 30, 2001 and December 31, 2000 2
Consolidated Statements of Income -
Three and Six Months Ended June 30, 2001 and 2000 3
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2001 and 2000 4
Notes to Consolidated Condensed
Financial Statements 5-8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 9-12
Item 3. Quantitative and Qualitative Disclosures about Market Risk 13
Part II. Other Information
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Exhibit Index 15
MILLIPORE CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, December 31,
2001 2000
- -------------------------------------------------------------------------------------------------------------------
ASSETS (Unaudited)
- ------
Current assets
Cash and cash equivalents $ 62,765 $ 55,186
Cash held as collateral - 3,212
Accounts receivable, net 135,074 137,035
Deferred income taxes 13,077 13,077
Inventories 82,797 84,051
Other current assets 5,832 5,214
--------- ---------
Total Current Assets 299,545 297,775
Property, plant and equipment, net 163,557 159,820
Deferred income taxes 71,283 71,283
Intangible assets 29,138 30,993
Other assets 11,982 11,438
Net assets of discontinued operations 227,748 248,790
--------- ---------
Total Assets $ 803,253 $ 820,099
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities
Notes payable $ 61,703 $ 52,544
Accounts payable 43,258 46,912
Accrued expenses 65,459 61,536
Dividends payable 5,385 5,319
Current portion of long-term debt 100,000 -
Accrued retirement plan contributions 4,756 8,244
Accrued income taxes payable 2,918 20,137
--------- ---------
Total Current Liabilities 283,479 194,692
Long-term debt 200,000 300,130
Other liabilities 22,013 19,909
Shareholders' equity
Common stock 56,988 56,988
Additional paid-in capital 35,547 30,546
Retained earnings 559,081 579,552
Unearned compensation (3,230) (4,490)
Accumulated other comprehensive loss (72,385) (48,548)
--------- ---------
576,001 614,048
Less: Treasury stock, at cost, 9,711
shares in 2001 and 10,594 in 2000 (278,240) (308,680)
--------- ---------
Total Shareholders' Equity 297,761 305,368
--------- ---------
Total Liabilities and Shareholders' Equity $ 803,253 $ 820,099
========= =========
The accompanying notes are an integral part of the consolidated condensed
financial statements.
-2-
MILLIPORE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------- -------------------------------
2001 2000 2001 2000
-------- -------- -------- --------
Net sales $167,953 $153,360 $330,470 $301,019
Cost of sales 72,061 68,716 146,015 131,286
-------- -------- -------- --------
Gross profit 95,892 84,644 184,455 169,733
Selling, general & administrative expenses 52,707 48,539 100,530 98,933
Research & development expenses 11,208 10,108 21,936 20,066
Restructuring and other charges - - 17,962 -
-------- -------- -------- --------
Operating income 31,977 25,997 44,027 50,734
Net gain on sale of securities - 7,151 - 7,151
Interest income 863 1,067 1,581 1,533
Interest expense (6,638) (7,259) (13,265) (14,293)
-------- -------- -------- --------
Income from continuing operations before
Income taxes 26,202 26,956 32,343 45,125
Provision for income taxes 5,764 7,256 4,780 11,071
-------- -------- -------- --------
Income from continuing operations $ 20,438 $ 19,700 $ 27,563 $ 34,054
(Loss) income from discontinued operations,
net of tax (4,783) 12,190 (6,738) 24,049
(Loss) on disposal of discontinued operations,
net of tax (24,400) - (24,400) -
-------- -------- -------- --------
Total discontinued operations (29,183) 12,190 (31,138) 24,049
Net (loss) income $ (8,745) $ 31,890 $ (3,575) $ 58,103
======== ======== ======== ========
Net (loss) income per share:
Continuing operations $ 0.44 $ 0.43 $ 0.59 $ 0.75
Discontinued operations $ (0.63) $ 0.27 $ (0.67) $ 0.53
Net (loss) income $ (0.19) $ 0.70 $ (0.08) $ 1.28
Diluted net (loss) income per share:
Continuing operations $ 0.43 $ 0.41 $ 0.58 $ 0.73
Discontinued operations $ (0.61) $ 0.26 $ (0.66) $ 0.51
Net (loss) income $ (0.18) $ 0.67 $ (0.08) $ 1.24
Cash dividends declared per share $ 0.11 $ 0.11 $ 0.22 $ 0.22
Weighted average shares outstanding:
Basic 46,928 45,849 46,678 45,568
Diluted 47,881 47,314 47,657 46,939
The accompanying notes are an integral part of the consolidated condensed
financial statements.
3
MILLIPORE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended June 30,
---------------------------------
2001 2000
-------- --------
Cash Flows From Operating Activities:
- -------------------------------------
Net income (loss) $ (3,575) $ 58,103
Less: Income (loss) from discontinued operations (6,738) 24,049
(Loss) on disposal of discontinued operations (24,400) -
-------- --------
Net income from continuing operations 27,563 34,054
Adjustments to reconcile net income from continuing operations to net cash
provided by operating activities:
Depreciation and amortization 15,797 14,654
Gain on sale of securities - (7,151)
Deferred tax benefit - (5,861)
Restructuring and other charges 17,962 -
Changes in operating assets and liabilities, net:
(Increase) in accounts receivable (6,493) (5,712)
(Increase) in inventories (4,487) (9,403)
(Increase) in other current assets and other assets (3,014) (1,917)
(Decrease) in accounts payable and accrued expenses (17,928) (2,481)
(Decrease) in accrued retirement plan contributions (1,400) (1,590)
(Decrease) increase in accrued income taxes (21,896) 6,924
Increase in other 2,480 2,229
-------- --------
Net cash provided by operating activities from continuing operations 8,584 23,746
Cash Flows From Investing Activities:
- -------------------------------------
Additions to property, plant and equipment (25,311) (11,237)
Proceeds from sale of property - 8,808
-------- --------
Net cash used in investing activities from continuing operations (25,311) (2,429)
Cash Flows From Financing Activities:
- -------------------------------------
Issuance of treasury stock under stock plans 30,352 23,351
Net change in borrowings under Lines of Credit 9,159 (13,545)
Dividends paid (10,235) (10,005)
Decrease in cash held as collateral 3,212 4,301
-------- --------
Net cash provided by financing activities from continuing operations 32,488 4,102
Effect of foreign exchange rates on cash and cash equivalents (3,451) (2,206)
-------- --------
Net cash provided by continuing operations 12,310 23,213
Net cash (used in) discontinued operations (4,731) (8,497)
-------- --------
Net increase in cash and cash equivalents 7,579 14,716
Cash and cash equivalents on January 1 55,186 32,420
-------- --------
Cash and cash equivalents on June 30 $ 62,765 $ 47,136
======== ========
The accompanying notes are an integral part of the consolidated condensed
financial statements.
4
MILLIPORE CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in millions, shares in thousands)
1. GENERAL: The accompanying unaudited consolidated condensed financial
statements have been prepared in accordance with the instructions to Form
10-Q and, accordingly, these footnotes condense or omit certain information
and disclosures which substantially duplicate information provided in the
Company's latest audited financial statements. These financial statements
should be read in conjunction with the financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2000. The financial statements for all periods presented
have been restated for discontinued operations as discussed in Note 2. In
the opinion of management, these financial statements reflect all
adjustments necessary for a fair presentation of the results for the interim
periods presented. The accompanying unaudited consolidated condensed
financial statements are not necessarily indicative of future trends or the
Company's operations for the entire year.
2. DISCONTINUED OPERATIONS: On October 3, 2000, the Company announced its
plans, subject to certain conditions, to separate into two distinct
companies by making its microelectronics business segment an independent,
publicly traded company. In accordance with these plans, the
microelectronics business segment was separated into a wholly-owned
Millipore subsidiary named Mykrolis Corporation ("Mykrolis") on March 31,
2001. Also in accordance with these plans, Mykrolis planned an initial
public offering of less than 20% of its common stock (the "Mykrolis IPO").
Within approximately six months of the Mykrolis IPO, the Company intends to
spin-off the remaining shares of Mykrolis through a dividend distribution to
Millipore shareholders.
During the second quarter, the Company received a ruling from the Internal
Revenue Service that the Mykrolis spin-off transaction, as planned, would
be tax-free to the Company and its stockholders. Thereafter, the Company's
management and Board of Directors approved the plan of disposition for
Mykrolis. Accordingly, the Company's consolidated condensed financial
statements and notes thereto reflect the Company's microelectronics business
as discontinued operations in accordance with Accounting Principles Board
Opinion No. 30.
On August 9, 2001, the registration statement on Form S-1 for the Mykrolis
IPO was declared effective, and the Mykrolis IPO is expected to be completed
on August 15, 2001. Based on 7 million shares offered at a price of $15.00
per share, Mykrolis will receive gross proceeds of $105 million. From these
gross proceeds, Mykrolis will pay underwriting commissions and other
expenses of approximately $8 million. Mykrolis will retain $75 million to
support operating requirements. The remainder will be paid to the Company in
accordance with the separation agreements between the two companies.
In addition, as part of the Mykrolis IPO, Mykrolis has granted its
underwriters an option to buy up to 1.05 million additional shares of
Mykrolis common stock at $15.00 per share to cover overallotment of shares
by the underwriters. The underwriters have 30 days to exercise this option.
The net proceeds resulting from an exercise of this overallotment option, if
any, will be distributed to the Company.
The summary of operating results from discontinued operations is as follows:
Three Months Ended Six Months Ended
-------------------- ----------------------
June 30, June 30,
2001 2000 2001 2000
-------------------------------------------------------------------------------------- ----------------------
Net revenue $56.4 $86.2 $139.0 $163.8
Gross Profit 19.7 45.7 58.8 85.1
(Loss) income from discontinued operations
Before income taxes $(6.1) $15.2 $(10.7) $ 30.2
Provision (benefit) for income taxes (1.3) 3.0 (4.0) 6.2
----- ----- ------ ------
(Loss) income from discontinued operations,
net of income taxes $(4.8) $12.2 $ (6.7) $ 24.0
===== ===== ====== ======
5
MILLIPORE CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in millions, shares in thousands)
In the second quarter of 2001, the Company recorded a $24.4 million loss
($35.1 million pretax) on disposal of discontinued operations. This loss
included the estimated future operating losses of $18.6 million ($27.8
million pretax) for Mykrolis through the planned disposition date in the
first quarter of 2002 and disposition expenses of $5.8 million ($7.3 million
pretax.)
Net assets of discontinued operations at June 30, 2001 and December 31, 2000
are summarized below:
June 30, December 31,
2001 2000
------- ------------
Current assets $147.5 $157.8
Non-current assets 137.1 145.8
Current liabilities (47.7) (39.9)
Non-current liabilities ( 9.2) (14.9)
------ ------
Net assets of discontinued operations $227.7 $248.8
====== ======
Current assets principally include accounts receivable and inventory. Non-
current assets include property, plant and equipment, deferred income taxes,
intangible assets and other assets. Current liabilities consist of accounts
payable, income taxes payable and accrued expenses. Non-current liabilities
consist principally of pension obligations.
Net cash flows from discontinued operations include $2.7 million of cash
used in operations and $2.0 million for investing activities in the first
half of 2001, and $1.7 million of cash used in operations and $6.8 million
for investing activities in the first half of 2000.
3. INVENTORIES: Inventories consisted of the following:
June 30, December 31,
2001 2000
-------- ------------
Raw materials $25.0 $24.9
Work in process 21.6 18.3
Finished goods 36.2 40.9
----- -----
Total $82.8 $84.1
===== =====
4. PROPERTY, PLANT AND EQUIPMENT: Accumulated depreciation on property, plant
and equipment was $158.7 at June 30, 2001 and $163.1 at December 31, 2000.
5. 1998 RESTRUCTURING PROGRAM: The 1998 Restructuring program has been
completed and substantially all final cash payments will occur in third
quarter of 2001. The payments consist primarily of lease termination costs.
Of the planned 159 employees, all left the Company pursuant to this
initiative.
The following is a summary of the restructuring program reserve balances at
June 30, 2001:
Balance at Balance at
December 31, Cash June 30,
2000 disbursements 2001
------------ ------------- ----------
Employee severance costs $0.9 $0.2 $0.7
Leasehold and other costs 1.6 0.5 1.1
---- ---- ----
Total $2.5 $0.7 $1.8
==== ==== ====
6. 2001 RESTRUCTURING PROGRAM AND OTHER CHARGES: In the first quarter of 2001,
a restructuring program was initiated to reorganize the Company. The program
included reducing, consolidating and outsourcing of certain manufacturing
operations, centralization of European shared services (including order
processing, cash collections and cash applications processes) and
streamlining certain corporate shared services and divisional overhead
functions to serve a smaller organization.
6
MILLIPORE CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in millions, shares in thousands)
These initiatives included a $16.5 million restructuring charge and $1.5
million of fixed asset write-offs for assets that are no longer in use. The
restructuring charge included $15.4 million of employee severance costs and
$1.1 million of lease cancellation costs. The severance costs included non-
cash stock based compensation expense related to changes in stock awards.
Approximately 215 positions will be eliminated and the affected employees
were notified by March 31, 2001. Certain of these employees will continue in
their existing positions for a limited period with their related salary
costs charged to operations as incurred. Under the terms of the severance
agreements, the Company expects to pay severance and associated benefits
through 2002. Through June 30, 2001, approximately 100 employees have left
the Company and $3.2 million of cash severance benefits have been paid.
The following is a summary of the 2001 Restructuring Program reserve
balances at June 30, 2001:
Restructuring Cash Non-cash Balance at
Charge activity activity June 30, 2001
------------------------------------------------------------------------------------
Employee severance costs $15.4 $3.2 $2.2 $10.0
Leasehold and other costs 1.1 - - 1.1
----- ---- ---- -----
Total $16.5 $3.2 $2.2 $11.1
===== ==== ==== =====
7. BASIC AND DILUTED EARNINGS PER SHARE: Share information used to calculate
earnings per share ("EPS") is as follows:
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
--------------------- ----------------------
Weighted average common shares outstanding for basic EPS 46,928 45,849 46,678 45,568
Dilutive effect of stock options and restricted stock 953 1,465 979 1,371
------ ------ ------ ------
Weighted average common shares outstanding for
diluted EPS 47,881 47,314 47,657 46,939
====== ====== ====== ======
8. COMPREHENSIVE INCOME: The following table presents the components of
comprehensive income (loss), net of taxes:
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
--------------------- -----------------------
Unrealized holding gains on marketable securities $ 0.5 $ 1.2 $ (0.8) $ 7.0
Reclassification adjustment for gains realized in
Net income - (4.7) - (4.7)
------ ------- ------- ------
Net unrealized gains (loss) on securities available
For sale $ 0.5 $ (3.5) $ (0.8) $ 2.3
Impact of adopting SFAS No. 133 (5.1)
Change in value of foreign currency interest rate
swaps designated as hedges 5.9
Foreign currency translation adjustments (6.7) (1.1) (23.8) (9.3)
------ ------- ------- ------
Other comprehensive loss (6.2) (4.6) (23.8) (7.0)
Net income (loss) (8.7) 31.9 (3.6) 58.1
------ ------- ------- ------
Total comprehensive income (loss) $(14.9) $ 27.3 $ (27.4) $ 51.1
====== ======= ======= ======
7
MILLIPORE CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in millions, shares in thousands)
9. DEBT: As a result of the adoption of discontinued operations accounting for
Mykrolis, the Company amended its revolving credit agreement (the
"Revolver"). The amendment modified the definition of EBITDA (earnings
before interest, taxes, depreciation and amortization) as used in the
Revolver, such that net losses associated with the Mykrolis discontinued
operations do not result in a continuing default under the Revolver's
financial covenants. The amendment also served to permit Mykrolis to obtain
secured financing not to exceed $35 million following the Mykrolis IPO and
reduced the maximum available to the Company for borrowing to $175 million.
In addition, the Company obtained a waiver under the agreement governing its
7.23% note payable (the "Note Agreement"). Under the waiver, the EBITDA
definition in the Note Agreement has been temporarily modified similarly to
the modifications obtained for the Revolver, described above, to prevent a
default of the Note Agreement's financial covenants. The waiver is valid
through October 19, 2001. Prior to the termination of the waiver, the
Company intends to negotiate either an extension of the waiver, an amendment
to the Note Agreement making the modified EBITDA definition permanent, or a
more comprehensive restructuring of the indebtedness under the Note
Agreement.
10. NEW ACCOUNTING PRONOUNCEMENTS: In July 2001, the FASB issued SFAS No. 141,
"Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 141 requires that all business combinations be accounted
for under the purchase method only and that certain acquired intangible
assets in a business combination be recognized as assets apart from
goodwill. SFAS No. 142 requires that ratable amortization of goodwill be
replaced with periodic tests of the goodwill's impairment and that
intangible assets other than goodwill be amortized over their useful lives.
SFAS No. 141 is effective for all business combinations initiated after June
30, 2001 and for all business combinations accounted for by the purchase
method for which the date of acquisition is after June 30, 2001. The
provisions of SFAS No. 142 will be effective for fiscal years beginning
after December 15, 2001, and will thus be adopted by the Company as required
in the first quarter of fiscal year 2002. The impact of SFAS No. 141 and
SFAS No. 142 on the Company's financial statements has not yet been
determined.
11. LEGAL PROCEEDINGS: On July 21, 1999 Amersham Pharmacia Biotech AB ("APB") of
Sweden filed a complaint in the High Court of Justice in the United Kingdom
against the Company and two of its subsidiaries alleging that the sale of
the Company's ISOPAK chromatography valve infringed one or more of the
claims contained in certain APB patents. APB sought an injunction against
the alleged infringement as well as damages. On October 26, 2000, the High
Court ruled that the chromatography valve currently sold by the Company did
not infringe the APB patents. APB appealed this decision and, on July 5,
2001, the British Appeals Court affirmed the decision of the High Court. APB
is now seeking leave to appeal the decision to the House of Lords. The High
Court also ruled that a discontinued product did infringe one of the APB
patents. A hearing on damages has yet to be scheduled with respect to this
matter. In any event, the outcome of this suit is not expected to have a
material adverse impact on the Company's financial condition or results of
operations.
12. BUSINESS SEGMENT INFORMATION: In conjunction with its reporting of the
Microelectronics business segment as discontinued operations in the second
quarter, the Company evaluated its continuing business activities that are
regularly reviewed by the Company's chief decision makers. As a result of
this evaluation, the Company determined that it operates in one reportable
operating segment, the Bioscience segment.
Within this segment, the Company develops, manufactures and sells consumable
products and capital equipment to pharmaceutical, biotechnology, life
science research companies, university and government laboratories and
research institutes. The Company's product offerings are used in laboratory
and research applications, drug discovery and development and in
biopharmaceutical and biotechnology applications for drug manufacturing.
These products are sold worldwide, principally through a direct sales force.
Distributors are used in selected regions and for specific product lines.
The Company's chief decision makers (the chief executive officer and the
Company's executive committee) evaluate the performance of the Company and
make resource allocation decisions based on total consolidated company
results. Please refer to the consolidated condensed financial statements
included herein for financial information regarding the one reportable
segment of the Company.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On October 3, 2000, the Company announced its plans, subject to certain
conditions, to separate into two distinct companies by making its
microelectronics business segment an independent, publicly traded company. In
accordance with these plans, the microelectronics business segment was separated
into a wholly-owned Millipore subsidiary named Mykrolis Corporation ("Mykrolis")
on March 31, 2001. Also in accordance with these plans, Mykrolis planned an
initial public offering of less than 20% of its common stock (the "Mykrolis
IPO"). Within approximately six months of the Mykrolis IPO, the Company intends
to spin-off the remaining shares of Mykrolis through a dividend distribution to
Millipore shareholders.
During the second quarter, the Company received a ruling from the Internal
Revenue Service that the Mykrolis spin-off transaction, as planned, would be
tax-free to the Company and its stockholders. Thereafter, the Company's
management and Board of Directors approved the plan of disposition for Mykrolis.
Accordingly, the Company's consolidated condensed financial statements and notes
thereto reflect the Company's microelectronics business as discontinued
operations in accordance with Accounting Principles Board Opinion No. 30.
On August 9, 2001, the registration statement on Form S-1 for the Mykrolis IPO
was declared effective, and the Mykrolis IPO is expected to be completed on
August 15, 2001. Based on 7 million shares offered at a price of $15.00 per
share, Mykrolis will receive gross proceeds of $105 million. From these gross
proceeds, Mykrolis will pay underwriting commissions and other expenses of
approximately $8 million. Mykrolis will retain $75 million to support operating
requirements. The remainder will be paid to the Company in accordance with the
separation agreements between the two companies.
In addition, as part of the Mykrolis IPO, Mykrolis has granted its underwriters
an option to buy up to 1.05 million additional shares of Mykrolis common stock
at $15.00 per share to cover overallotment of shares by the underwriters. The
underwriters have 30 days to exercise this option. The net proceeds resulting
from an exercise of this overallotment option, if any, will be distributed to
the Company.
Unless otherwise indicated, the remainder of this discussion is on a continuing
operations basis only.
Local Currency Results
- ----------------------
The following discussion of the Results of Operations includes reference to
revenue, margins and expenses in "local currencies". Local currency results
represent the foreign currency balances translated, in all periods presented, at
Millipore's budgeted exchange rates for 2001, thus excluding the impact of
fluctuations in the actual foreign currency rates. The Company's management
uses this presentation for internal evaluation of the financial performance of
the Company because it believes that the local currency results provide a
clearer presentation of underlying business trends. The U.S. dollar results
represent the foreign currency balances translated at actual exchange rates.
Results of Operations
- ---------------------
Consolidated net sales for the second quarter of 2001 were $168 million, an
increase of 10% over sales for the same period last year. The Company reported
earnings from continuing operations of $0.43 per share for the second quarter of
2001 compared to earnings per share of $0.41 for the second quarter of 2000.
The following table summarizes sales growth by geography in the second quarter
of 2001 as compared to the second quarter of 2000 (U.S. dollars in millions):
June 30, Sales Growth
2001 2000 In U.S. Dollars Local Currency
---------------------------------------------------------------------------------
Americas $ 80 $ 69 15% 15%
Europe 55 51 7% 14%
Asia/Pacific 33 33 1% 15%
----- ----- -- --
Total $ 168 $ 153 10% 14%
===== ===== == ==
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In the second quarter of 2001, the Japanese yen weakened against the U.S. dollar
by approximately 18%, and the Euro weakened against the U.S. dollar by
approximately 13%, compared to the second quarter of 2000. Despite the increase
in volume of both yen and Euro denominated sales, the weaker yen and Euro
resulted in an unfavorable currency impact on sales growth rates by 4 percentage
points in the second quarter of 2001. If foreign exchange rates remain at July
28, 2001 levels, the expected third quarter and full year 2001 sales growth in
dollars, as compared to the prior year, will remain lower than local currency
growth rates.
Sales, in local currency, increased 14% in the second quarter of 2001 compared
to the second quarter of 2000. Double-digit sales growth, in local currency, was
reported in all geographies. Sales growth was strongest to customers in
biotechnology markets and life science markets.
Gross profit margins, in local currencies, were 57% in the second quarter of
2001 compared to 56% reported in the second quarter of 2000. The improved
margins were primarily attributed to increased sales volumes, combined with a
favorable mix of consumable product sales that generally have higher margins.
Selling, general and administrative expenses (SG&A), in local currencies,
increased 13% in the second quarter of 2001 as compared to the second quarter of
2000. This increase is primarily attributed to increased spending due to higher
sales volume. As a percentage of net sales, SG&A expenses in local currencies
decreased approximately 1 percentage point.
Research and development (R&D) expenses, in local currencies, increased 13% in
the second quarter of 2001 as compared to the second quarter of 2000. This
increase is due to additional R&D programs primarily in the areas of genomic and
proteomic research. As a percentage of sales, R&D expenses remained constant at
6%.
Operating income, in local currency, increased 27% in the second quarter of 2001
over the second quarter of 2000 primarily as a result of the increased sales
combined with improved gross profit margins.
Operating income in the second quarter of 2001 as compared to the second quarter
of 2000, in U.S. dollars, was adversely affected by the impact of the weakened
Euro and Japanese yen. If current foreign exchange rates remain in effect for
the third quarter and full year of 2001, foreign exchange will have a more
significant negative impact on operating income as compared to the same periods
of the prior year.
In the second quarter of 2000, the Company sold its holdings in Oxford
GlycoSciences Plc, resulting in a gain on sale of securities of $7.5 million.
Net interest expense decreased in the second quarter of 2001 as compared to the
second quarter of 2000 primarily attributed to lower average borrowings.
The effective income tax rate for the first half of 2001 and 2000 was 22%,
excluding unusual items for the March 2001 restructuring program and gain on
sale of equity securities recorded in the second quarter of 2000. The effective
income tax rate on these unusual items was 35% because they occurred in
countries with higher tax rates.
Loss from discontinued operations for the second quarter of 2001 was $4.8
million compared to income of $12.2 million for the second quarter of 2000.
(Loss) income from discontinued operations includes the results of the
microelectronics businesses that comprise Mykrolis.
Loss on disposal of discontinued operations of $24.4 million recorded in the
second quarter of 2001 includes estimated future operating losses of $18.6
million for Mykrolis through the planned disposition date in the first quarter
of 2002 and disposition expenses of $5.8 million.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Restructuring and Other Charges
- -------------------------------
In the first quarter of 2001, the Company initiated a restructuring program. Key
initiatives that will be substantially concluded by the first quarter of 2002
include:
o Globally streamlining certain corporate shared services and divisional
overhead functions to serve smaller organizations
o Centralizing into two locations European shared services including order
processing, cash collections and cash applications processes
o Closing the manufacturing operation in China in order to reduce
manufacturing infrastructures
o Outsourcing certain manufacturing processes in Puerto Rico to third party
vendors in order to create a more flexible cost structure
These initiatives included a $16.5 million restructuring charge and $1.5 million
of fixed asset write-offs for assets which are no longer in use. The
restructuring charge included $15.4 million of employee severance costs and $1.1
million of lease cancellation costs. Approximately 215 positions were eliminated
and the affected employees were notified by March 31, 2001, however for
employees temporarily continuing in their existing positions, related salary
costs will be charged to operations as incurred. Under the terms of the
severance agreements, the Company expects to pay severance and associated
benefits through 2002. Through June 30, 2001, approximately 100 employees have
left the Company and $3.2 million of severance benefits have been paid.
The restructuring program is expected to yield annualized savings of
approximately $10 million. The savings will result in reduced wages, facility
related costs and depreciation. The savings will be reflected in cost of sales,
SG&A expenses and R&D expenses. The savings, which began in the second quarter
of 2001, will not be fully realizable until the second half of this year and
into the first quarter of 2002.
Foreign Exchange
- ----------------
A substantial portion of the Company's business is conducted outside of the
United States through its foreign subsidiaries, generally in the local currency.
Approximately 30% of the Company's sales are derived from Europe where the U.S.
dollar continued to strengthen against the Euro during the second quarter of
2001, and 20% of the sales are from Asia/Pacific where the U.S. dollar
strengthened against the Japanese yen. The Company is able to partially
mitigate the impact of currency fluctuations by active management of cross
border currency flows and material sourcing. Generally, when the U.S. dollar
strengthens against currencies in which the Company transacts its business,
sales and net income will be adversely impacted.
Capital Resources and Liquidity
- --------------------------------
Cash generated by operations in the first six months of 2001 was $ 8.6 million,
compared to cash generated by operations of $23.7 million in the first six
months of 2000. In the first six months of 2001, net income of $25.6 million
(excluding the $18.0 million ($11.7 after tax) of restructuring) was primarily
offset by decreases in accounts payable and accrued expenses of $17.9 million
and accrued income taxes of $21.9 million. The accounts payable and accrued
expense decrease related to payments for employee compensation accrued in 2000
coupled with lower employee compensation accruals for the first half of 2001.
The decrease in accrued taxes resulted from income tax payments made during the
first six months of 2001. The Company also borrowed $9.2 million under its
revolving credit facility and received $30.4 million for stock option exercises
and $3.2 million of cash previously restricted as part of the close out of the
debt swap agreements. Cash was used to invest $25.3 million in property, plant
and equipment and to pay dividends of $10.2 million.
As a result of the adoption of discontinued operations accounting for Mykrollis,
the Company amended its revolving credit agreement (the "Revolver"). The
amendment modified the definition of EBITDA (earnings before interest, taxes,
depreciation and amortization) as used in the Revolver, such that net losses
associated with discontinued operations do not result in a continuing default
under the Revolver's financial covenants. The amendment also served to permit
Mykrolis to obtain secured financing not to exceed $35 million following the
Mykrolis IPO and reduced the maximum amount available to the Company for
borrowings to $175 million.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In addition, the Company has obtained a waiver under the agreement governing its
7.23% note payable (the "Note Agreement"). Under the waiver, the EBITDA
definition in the Note Agreement has been temporarily modified similarly to the
modifications in the Revolver, to prevent a default of the Note Agreement's
financial covenants. The waiver is valid through October 19, 2001. Prior to
the termination of the waiver, the Company intends to negotiate either an
extension of the waiver, an amendment to the Note Agreement making the modified
EBITDA definition permanent, or a more comprehensive restructuring of the
indebtedness under the Note Agreement.
Legal Proceedings
- -----------------
On July 21, 1999 Amersham Pharmacia Biotech AB ("APB") of Sweden filed a
complaint in the High Court of Justice in the United Kingdom against the Company
and two of its subsidiaries alleging that the sale of the Company's ISOPAK
chromatography valve infringed one or more of the claims contained in certain
APB patents. APB sought an injunction against the alleged infringement as well
as damages. On October 26, 2000, the High Court ruled that the chromatography
valve currently sold by the Company did not infringe the APB patents. APB
appealed this decision and, on July 5, 2001, the British Appeals Court affirmed
the decision of the High Court. APB is now seeking leave to appeal the decision
to the House of Lords. The High Court also ruled that a discontinued product
did infringe one of the APB patents. A hearing on damages has yet to be
scheduled with respect to this matter. In any event, the outcome of this suit
is not expected to have a material adverse impact on the Company's financial
condition or results of operations.
New Accounting Pronouncements
- ------------------------------
In July 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS No.
142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires that all
business combinations be accounted for under the purchase method only and that
certain acquired intangible assets in a business combination be recognized as
assets apart from goodwill. SFAS No. 142 requires that ratable amortization of
goodwill be replaced with periodic tests of the goodwill's impairment and that
intangible assets other than goodwill be amortized over their useful lives.
SFAS No. 141 is effective for all business combinations initiated after June 30,
2001 and for all business combinations accounted for by the purchase method for
which the date of acquisition is after June 30, 2001. The provisions of SFAS
No. 142 will be effective for fiscal years beginning after December 15, 2001,
and will thus be adopted by the Company as required in the first quarter of
fiscal year 2002. The impact of SFAS No. 141 and SFAS No. 142 on the Company's
financial statements has not yet been determined.
Forward Looking Statements
- --------------------------
The foregoing Management's Discussion and Analysis of Financial Condition and
Results of Operations contain certain forward-looking statements based on
current management expectations involving substantial risks and uncertainties
that could cause actual results to differ materially from the results expressed
in, or implied by, these forward-looking statements. These risks and
uncertainties include, without limitation, difficulties in the successful
implementation of our restructuring activities, as well as those risks and
uncertainties described in our Form 10-K for the year ended December 31, 2000.
12
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The mitigating actions enumerated above under "Foreign Exchange" in Management's
Discussion and Analysis of Financial Condition and Results of Operations and in
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in the Company's Annual Report on Form 10-K have
effectively limited the impact of exchange rate fluctuations and credit risk on
the Company's results of operations and financial position to a level which is
not material.
Part II - Other Information
Item 1 Legal Proceedings
On July 21, 1999 Amersham Pharmacia Biotech AB ("APB") of Sweden filed a
complaint in the High Court of Justice in the United Kingdom against the Company
and two of its subsidiaries alleging that the sale of the Company's ISOPAK
chromatography valve infringed one or more of the claims contained in certain
APB patents. APB sought an injunction against the alleged infringement as well
as damages. On October 26, 2000, the High Court ruled that the chromatography
valve currently sold by the Company did not infringe the APB patents. APB
appealed this decision and, on July 5, 2001, the British Appeals Court affirmed
the decision of the High Court. APB is now seeking leave to appeal the decision
to the House of Lords. The High Court also ruled that a discontinued product
did infringe one of the APB patents. A hearing on damages has yet to be
scheduled with respect to this matter. In any event, the outcome of this suit
is not expected to have a material adverse impact on the Company's financial
condition or results of operations.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
2.1+ Form of Master Separation and Distribution Agreement between Millipore
and Mykrolis Corporation (formerly Millipore Microelectronics Inc.)
2.2+ Form of General Assignment and Assumption Agreement between Millipore and
Mykrolis.
10.1 Master Patent Assignment between Millipore and Mykrolis.
10.2 Master Patent License Agreement between Millipore and Mykrolis.
10.3 Master Patent Grantback License Agreement between Millipore and Mykrolis.
10.4 Master Trademark Assignment between Millipore and Mykrolis.
10.5 Master Trademark License Agreement between Millipore and Mykrolis.
10.6 Master Invention Disclosure Assignment between Millipore and Mykrolis.
10.7 Master Trade Secret and Know-How Agreement between Millipore and
Mykrolis.
10.8 Tax Sharing Agreement between Millipore and Mykrolis.
10.9 Employee Matters Agreement between Millipore and Mykrolis.
10.10 Master Transitional Services Agreement between Millipore and Mykrolis.
10.11 Reorganization of Operations Outside the U.S.
10.12 Membrane Manufacture and Supply Agreement between Millipore and Mykrolis.
10.13 Research Agreement between Millipore and Mykrolis.
10.14 Product Distribution Agreement between Millipore and Mykrolis.
10.15 Millipore Contract Manufacturing Agreement.
10.16 Mykrolis Contract Manufacturing Agreement.
10.17 Form of Mykrolis Separation Note.
10.18 Separation Revolving Credit Agreement between Millipore and Mykrolis.
10.19 Third Amendment, effective August 1, 2001, to Revolving Credit Agreement
with Fleet National Bank and certain other lending institutions
+ Millipore Corporation agrees to furnish supplementally to the Commission a
copy of any omitted schedule or exhibit to such agreement upon request by the
Commission.
b. Report on Form 8-K
No reports on Form 8-K have been filed by the Company during the fiscal
quarter ended June 30, 2001.
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Millipore Corporation
Registrant
August 14, 2001 /s/ Kathleen B. Allen
- --------------- ---------------------
Date Kathleen B. Allen
Vice President and Chief Financial Officer
August 14, 2001 /s/ Donald B. Melson
- --------------- ---------------------
Date Donald B. Melson
Corporate Controller and Chief Accounting Officer
14
Exhibit Index
Exhibit
Number Exhibit Title
- ------- -------------
2.1+ Form of Master Separation and Distribution Agreement between Millipore
and Mykrolis Corporation (formerly Millipore Microelectronics, Inc.)
2.2+ Form of General Assignment and Assumption Agreement between Millipore
and Mykrolis.
10.1 Master Patent Assignment between Millipore and Mykrolis.
10.2 Master Patent License Agreement between Millipore and Mykrolis.
10.3 Master Patent Grantback License Agreement between Millipore and
Mykrolis.
10.4 Master Trademark Assignment between Millipore and Mykrolis.
10.5 Master Trademark License Agreement between Millipore and Mykrolis.
10.6 Master Invention Disclosure Assignment between Millipore and Mykrolis.
10.7 Master Trade Secret and Know-How Agreement between Millipore and
Mykrolis.
10.8 Tax Sharing Agreement between Millipore and Mykrolis.
10.9 Employee Matters Agreement between Millipore and Mykrolis.
10.10 Master Transitional Services Agreement between Millipore and Mykrolis.
10.11 Reorganization of Operations Outside the U.S.
10.12 Membrane Manufacture and Supply Agreement between Millipore and
Mykrolis.
10.13 Research Agreement between Millipore and Mykrolis.
10.14 Product Distribution Agreement between Millipore and Mykrolis.
10.15 Millipore Contract Manufacturing Agreement.
10.16 Mykrolis Contract Manufacturing Agreement.
10.17 Form of Mykrolis Separation Note.
10.18 Separation Revolving Credit Agreement between Millipore and Mykrolis.
10.19 Third Amendment, effective August 1, 2001, to Revolving Credit
Agreement with Fleet National Bank and certain other lending
institutions.
+ Millipore Corporation agrees to furnish supplementally to the Commission a
copy of any omitted schedule or exhibit to such agreement upon request by the
Commission.
15